The global enterprise IT modernisation and migration to SaaS cloud computing platforms has been accelerated by the ongoing COVID-19 pandemic, as more CIOs and CTOs adapt to the increased demand for flexible online working models that enable their knowledge worker employees to work from virtually anywhere.
Clearly, IT infrastructure vendors directly benefited from this phenomenon.
Vendor revenue from sales of IT infrastructure products for cloud environments — including public and private cloud — increased 9.4 percent year-over-year in the third quarter of 2020 (3Q20). However, investments in traditional, non-cloud, IT infrastructure declined -8.3 percent year-over-year, according to the latest worldwide market study by International Data Corporation (IDC).
These growth rates demonstrate the market response to major adjustments in business, educational, and societal activities caused by the COVID-19 pandemic and the role IT infrastructure plays in these adjustments.
Across the globe, there were massive shifts to online tools in all aspects of human life — including collaboration, virtual business events, entertainment, shopping, telemedicine, and education. Cloud computing environments, and particularly public cloud services, were a key enabler of this shift.
Public cloud infrastructure market development
Spending on public cloud IT infrastructure increased 13.1 percent year-over-year in 3Q20, reaching $13.3 billion. During the previous quarter spending on public cloud IT infrastructure exceeded non-cloud IT infrastructure spending for the first time ever, but non-cloud IT infrastructure spending was back on top in 3Q20 at $13.7 billion.
IDC expects public cloud IT infrastructure spending to surpass non-cloud IT infrastructure spending again in the near future and expand its lead going forward. Spending on private cloud infrastructure increased 0.6 percent year-over-year in 3Q20 to $5 billion with on-premises private clouds accounting for 63.2 percent of this amount.
IDC believes the hardware infrastructure market will continue to account for an increasingly greater share of overall spending. With only one quarter remaining and the market stabilizing after the initial COVID-19 market shock, IDC has increased its forecast slightly for cloud IT infrastructure spending for the full year 2020, expecting 11.1 percent growth to $74.1 billion.
IDC reduced its forecast for non-cloud infrastructure, expecting a decline of -11.4 percent to $60.2 billion. Public cloud IT infrastructure is expected to grow by 16.7 percent year-over-year to $52.7 billion for the full year. Spending on private cloud infrastructure is expected to decline -0.5 percent to $21.3 billion for the full year.
As of 2019, the dominance of cloud IT environments over non-cloud already existed for compute platforms and Ethernet switches while the majority of newly shipped storage platforms were still residing in non-cloud environments. Starting in 2020, with increased investments from public cloud providers on storage platforms, this shift will remain persistent across all three technology domains.
Within cloud deployment environments in 2020, compute platforms will remain the largest segment (49.1 percent) of spending, growing at 2.3 percent to $36.4 billion while storage platforms will be the fastest-growing segment with spending increasing 27.4 percent to $29.2 billion, and the Ethernet switch segment will grow 4 percent year over year to $8.5 billion.
Spending on cloud IT infrastructure increased across most regions in 3Q20, with the highest annual growth rates in Canada (32.8 percent), China (29.4 percent), and Latin America (23.4 percent). Growth in the United States was 4.7 percent. Japan and Western Europe declined by -6.7 percent and -3.4 percent, respectively. In all regions except Canada and Japan, growth in public cloud infrastructure exceeded growth in private cloud IT.
Outlook for cloud infrastructure investment growth
Long-term, IDC expects spending on cloud IT infrastructure to grow at a five-year compound annual growth rate (CAGR) of 10.6 percent, reaching $110.5 billion in 2024 and accounting for 64 percent of total IT infrastructure spend.
Public cloud data centres will account for 69.9 percent of this amount, growing at an 11.3 percent CAGR. Spending on private cloud infrastructure will grow at a CAGR of 9.2 percent. Spending on non-cloud IT infrastructure will rebound after 2020 but will decline overall at a CAGR of -1.7 percent.
There’s no doubt in my mind that this cloud growth trend will continue for the foreseeable future. That said, the demand doesn’t change the fact that many multinational enterprise organizations still require the inherent flexibility of a hybrid multi-cloud environment. Traditional on-premises IT systems are often mandated for regulatory compliance, and other key factors, that make these platforms invaluable corporate assets.
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